DALAM MAHKAMAH RAYUAN MALAYSIA (BIDANG KUASA RAYUAN)
RAYUAN SIVIL NO.: P-02(NCVC)(W)-1230-07/2014
KEKAL BARU SDN BHD
(No. Syarikat : 716837-X) … PERAYU
SOUTHWEST MINERALS (M) SDN BHD
(No. Syarikat : 929723-T) … RESPONDEN
(Dalam Perkara Guaman Sivil No. 22NCVC-441-06/2012 Dalam Mahkamah Tinggi Malaya Di Pulau Pinang
SOUTHWEST MINERALS (M) SDN BHD
(No. Syarikat : 929723-T) … PLAINTIF
KEKAL BARU SDN BHD
(No. Syarikat : 716837-X) … DEFENDAN)
LIM YEE LAN, JCA ROHANA YUSUF, JCA VERNON ONG LAM KIAT, JCA
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 This appeal stems from the decision of the High Court ordering the defendant to pay to the plaintiff the sum of RM283,500.00 being adjustment for iron (Fe) content, RM54,432,00 being adjustment for moisture content and RM3,227.00 being the defendant’s portion of the charges for obtaining the analysis report in respect of iron ore supplied by the defendant.
 On 27.1.2015, we heard submission of counsel for the parties. After perusing the written submissions and record of appeal, we allowed the defendant’s appeal with costs. The grounds of our decision are as follows. For convenience, the parties shall be referred to as they were in the court below.
BRIEF ACCOUNT OF THE SALIENT FACTS
 Pursuant to a written agreement for the sale and purchase of iron ore dated 28.2.2012 (“the Contract”), the defendant agreed to sell and the plaintiff agreed to buy 10,000 MT (+/- 10% at buyer’s option) of iron ore 0-50mm FE 54% at the price of RM140.00 per wet metric ton (WMT) Ex-Seller Mining Site.
 At the plaintiff’s request, the defendant sent the iron ore shipment to the Malacca Port to be loaded onto the vessel MV Christina for shipment to China. A total of 8,100 MT was loaded on the said vessel.
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 The plaintiff paid the defendant a total sum of RM1,376,000.00 for the iron ore shipment (RM1,134,000.00) and other charges (RM242,200.00).
 A total of 6 composite samples of the iron ore were taken at the loading port. One such sample was sent to SGS laboratory Services (M) Sdn Bhd (‘SGS’) for analysis. According to SGS’ Analysis Report dated 24.4.2012 (“the 1st SGS Report”), the Fe content was 50.5% and moisture content was 12.8%. SGS also issued a Certificate of Quality dated 26.4.2012 certifying that analysis results.
 At the defendant’s request, SGS conducted another test at the loading port. According to SGS’ Analysis Report dated 4.5.2012 (“the 2nd SGS Report”), the Fe and moisture content were consistent with that of the first SGS Report.
 On 4.5.2012, the plaintiff and the defendant signed a document (exh. P7) whereby it was agreed that they would accept the 2nd SGS Report “as final analysis standard and calculation for the payment.”
 The plaintiff’s claim for the price adjustments for iron and moisture content is premised on clause 6 of the Contract which provides for price adjustment.
FINDINGS OF THE LEARNED JUDICIAL COMMISSIONER
 The findings of the learned Judicial Commissioner (JC) may be summarized as follows:
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(i) the Contract is not a conditional contract. Clause 9 of the Contract does not make it a condition precedent for the plaintiff to have the iron ore tested by SGS before the Contract can be executed;
(ii) the plaintiff had the option to have the iron ore inspected by SGS at the mining site;
(iii) the plaintiff is entitled to have the iron ore inspected at the loading port under clause 6;
(iv) the words “each shipment” and “cargo” in clause 6 under the heading “Price Adjustment for Fe content based on SGS report” refers to the iron ore at the loading port;
(v) based on clauses 6 and 14 of the Contract, there must be price adjustment for Fe content based on the 2nd SGS Report at the loading port;
(vi) the fact that no pre-shipment inspection was done does not entitle the plaintiff from asking for the price adjustment for the Fe content based on the 2nd SGS Report at the loading port; and
(vii) the subsequent conduct of the defendant shows that the defendant agreed to the price adjustment for the Fe content.
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SUBMISSION OF PARTIES
 Learned counsel for the defendant argued that clause 9 is a preshipment inspection clause. It is for the plaintiff to satisfy itself that the iron ore was according to specifications prior to delivery of the iron ore ExSeller Mining site. The plaintiff did not have the iron ore inspected by SGS at the mining site pursuant to clause 9.
 Learned counsel also argued that the plaintiff is not entitled to claim for the price adjustment on the basis of the Fe content based on the 2nd SGS Report. Since the plaintiff had elected not to have the iron ore inspected by SGS on site as provided under clause 9 of the Contract, the plaintiff must be taken to have accepted that the iron ore conformed to the specifications. The plaintiff cannot demand that the price be adjusted for Fe content after the iron ore had been delivered.
 In essence, the defendant’s argument is that the Contract was based on an Ex-Seller mining site basis; the price adjustment for Fe content must be based on an inspection done at the mining site. As the plaintiff elected not to inspect the iron ore at the mining site, clause 6 on price adjustment for Fe content does not apply. Therefore, the plaintiff is not entitled to any price adjustment for Fe content based on the 2nd SGS Report at the loading port.
 Learned counsel submitted that the only price adjustment contemplated post-delivery is adjustment for moisture content at loading port. The words “final adjustment payment” in clause 14 refers to price adjustment for moisture content based on the 2nd SGS Report at loading port.
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 In reply, learned counsel for the plaintiff argued that price adjustment for Fe content should be based on the 2nd SGS Report at the loading port. The Contract is not an “Ex-Seller Mining Site contract. The plaintiff has a discretion on whether to do pre-shipment testing. The fact that no pre-shipment testing was done does not disentitle the plaintiff from asking for a price adjustment for Fe content based on the 2nd SGS Report.
 Learned counsel argued that clause 6 allows the plaintiff to obtain the SGS report on the iron ore at the loading port and that clauses 6 and 14 provide for price adjustment for Fe content based on the 2nd SGS Report. Clauses 6 and 14 of the Contract must be read together. As such, there must be a price adjustment for Fe content.
 Learned counsel also argued that the defendant’s conduct clearly shows that the defendant agreed that price adjustments for Fe content must be made based on the 2nd SGS Report. DW1 witnessed the second testing for Fe and moisture content which was done by SGS on 4.5.2012 at the loading port. DW1 agreed and accepted exh. P7 as the basis for the calculation of the price adjustment.
 There is only one main issue in this appeal. It is whether the plaintiff is entitled to a price adjustment for Fe content of the iron ore based on the 2nd SGS Report at the loading port.
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 The key to the determination of this issue revolves around the interpretation of clauses 6, 9 and 10 of the Contract. The pertinent clauses are reproduced below.
“(6) Price Adjustment for Fe content based on SGS report:
In respect of each shipment of iron ore lumps which does not meet the Fe specifications at (sic) set forth above and base price referred to in clause 3 shall be adjusted as follow (sic):
i) The base price shall be increased by RM10.00 per metric ton for each 1% Fe above 54% fraction pro-rata.
ii) The base price shall be decreased by RM10.00 per metric ton for each 1% Fe below 54% fraction pro-rata.
iii) The buyer has the option to reject the cargo if Fe content is below 50%.
Based on SGS report at loading port, moisture 50:50. SGS cost share between seller and buyer. (sic)”
“(9) Pre-shipment Inspection
The Buyer is entitled to have the goods inspected by SGS Malaysia at Buyer’s expenses (sic) at the mining site.
If the pre-shipment results is found acceptable and conformity (sic) of the specifications, then this contract shall be executed according to the terms and conditions stated herein.
“(10) Payment Mode: Payment deposit amounting RM100000 once signed contract. Buyer shall remit payment 30% of the total cargo value to the seller’s account after delivery Iron Ore Lumps 4000mt to port. Balance amount should remit within 7 days after complete deliver cargo to port. Final payment adjustment will be based on SGS result at loading port.” (Emphasis added)
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 In Berjaya Times Squares Sdn Bhd (formerly known as Berjaya Ditan Sdn Bhd) v M Concept Sdn Bhd  1 MLJ 597 FC, the
Federal Court laid down 4 instructive guidelines to be followed in interpreting a private contract. They are as follows:
i. A court interpreting a private contract is not confined to the 4 corners of the document;
ii. The court is entitled to look at factual matrix forming the background to the transaction;
iii. The court must disregard any part of the background that is declaratory of subjective intent only; and
iv. The court should adopt an objective approach when interpreting a private contract.
 In other words, the meaning of the Contract is to be discovered from the words which the parties have used read in the context of the surrounding circumstances in which the Contract was entered into.
 To put the objective approach in another way, in interpreting a private contract of a commercial nature, the Court would prefer a commercially sensible construction; whereby the words are interpreted in the way in which a reasonable commercial person would construe them. In other words, the Court will give effect to a commercial construction that is more likely to give effect to the intention of the parties (See Damansara Realty Bhd v Bungsar Hill Holdings Sdn Bhd & Anor 9 CLJ 257
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FC; Manai Investment Ltd v Eagle Star Life Assurance Co Ltd  AC 749 HL).
 In our view, the Contract speaks for itself. It is apparent from clause 3 of the Contract that the Contract is an Ex-Seller Mining Site contract. The price of the iron ore does not include any other charges such as delivery and pre-shipment inspection (clauses 8 & 9); as such, the plaintiff qua buyer bears the costs of delivery and inspection. It is for the plaintiff to take delivery of the iron ore at the mining site.
 Clause 9 specifically deals with pre-shipment inspection at the mining site. The plaintiff’s argument that it was the commercial intention of the parties to have the inspection of iron content at the loading port is inconsistent with the plain and ordinary meaning of clause 9. As such, it would not be commercially sensible for the Contract to be interpreted so as to give the plaintiff the option to reject the iron ore at the loading port since no pre-shipment inspection was conducted at the mining site.
 The first part of clause 6 relates to price adjustment for iron content based on SGS report. It refers to “each shipment” of the iron ore which does not meet the Fe specifications. The second part of clause 6 relates to the moisture content and it refers to “SGS report at loading port”. It is significant to note that the reference to “loading port” is absent in the first part relating to price adjustment for Fe content.
 Applying the principles enunciated in Berjaya Times Squares case, the only commercially reasonable and sensible interpretation is for clause 6 to be read subject to clause 9. The pre-shipment inspection provided under clause 9 specifically refers to the shipment of iron ore Ex-
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Mining Site under the first part of clause 6 under heading “Price Adjustment for Fe content based on SGS report”. Therefore, the clauses must be construed to refer to the inspection of the iron ore for Fe content at the mining site and not at the loading port. This construction is fortified by the second part of clause 6 on moisture content where specific reference is made to the SGS report at loading port whereas in the former, there is no such reference.
 We also observe that in construing the Contract, the learned JC took into account the subsequent conduct of the parties. We do not think that that is the right approach and in that regard, the learned JC misdirected himself on the law.
 For the foregoing reasons, we are not in agreement with the findings of the learned JC. Accordingly, the appeal was allowed with costs of RM20,000.00.
COURT OF APPEAL MALAYSIA
DATED : 27th January 2015
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Chan Sock Mun – Tetuan Tan Chuan Yong & S.M. Chan,8th Floor, No. 55-8, The Bluevard, Mid Valley City, Lingkaran Syed Putra 59200 Kuala Lumpur – Perayu.
M. Thayalan – Tetuan Malkit Singh Randhawa Baidura & Co, Wisma Manora, No. 416-B (2nd Floor), Jalan Jelutong, 11600 Penang – Responden.
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